EDMONTON — This Christmas, Potash Corp. spread the holiday cheer by raising dividends to its shareholders and gifting 18 per cent of its workforce with layoff notices.

These actions may appear counterintuitive and even bizarre to employees and those who don’t study business, but the reality is they are not out of the ordinary and are becoming more and more common in Canada. A corporate culture of maximizing shareholder value and short-termism has overtaken building “real value” and long-term corporate sustainability.

The theory of maximizing shareholder value was originally developed in the 1970s by free-market economists at the University of Chicago. Its raison d’être was to protect shareholders from a “managerialist” philosophy that taught corporations should be professionally managed to serve not just shareholders, but also employees, customers, and the broader society. It taught the purpose of the corporation was to serve shareholders and the best way to maximize the total value of the company was to maximize share price. An increase in share price was viewed as proof of greater economic efficiency, a view that is currently held in most publicly-traded companies.

Right leaning governments use this philosophy to justify their effort to reduce employee rights and environmental constraints to making profit.

Under the theory of shareholder value, business performance is measured through the metric of share price: high share price means “good corporate governance.” Good corporate governance is rewarded by offering shares to executives. Rather than protecting shareholders, the system has created a culture where executives focus on the expectations market (share price), rather than the real job of running the company. There is little monetary incentive to improve the company five or 10 years in the future.

In 2012, the CEO of Potash Corp. made approximately $1.2 million in salary but his total compensation, including stock options and stock awards, was nearly $11 million. According to its own corporate documents, the performance metrics that determine executive compensation are based on cash flow and market value, not “real value” of the company or even the amount of potash sold.